What's in it for the IRS?

SO THAT’S A BIG BUDGET DEAL: Now that congressional leaders have reached a deal to increase spending caps by some $300 billion over the next two years, here’s the big question for the tax world — how much of that might head to the IRS?

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The IRS brass has only asked for a fraction of 1 percent of that — $397 million over the next two years — to help implement the new tax law. And it’s pretty clear the tax agency will get something tangible out of this deal — but how much still isn’t clear. “Leaders agreed to work with the heads of the appropriations committees to boost funding on a number of non-defense spending priorities in the 2018 omnibus spending bill and the 2019 appropriations bill beyond 2017 levels, including the IRS,” Pro Tax’s Aaron Lorenzo reports, noting that the agreement struck by leaders vowed, somewhat vaguely, to ensure “adequate funding” for both the IRS and the Social Security Administration.

Related note: Tony Reardon, president of the National Treasury Employees Union, warned the administration and congressional Republicans that they’d be putting their own signature achievement at risk if they lowball the IRS on funding.

That’s essentially what Congress is going to try in the new budget deal — to restore more than 30 temporary tax incentives that expired at the end of 2016 just for 2017. That one-year extension would reward those companies that conducted their business last year as if Congress would restore the preferences, even after a big extenders deal late in 2015 made permanent some of the most prominent temporary tax breaks. And as for 2018? House Republicans, who generally speaking haven’t been as keen on the extenders as their Senate counterparts, have vowed to take a deep look this year at those temporary preferences, potentially keeping some and tossing aside the others for good.

NOW ABOUT THAT TAX LAW: The IRS and the Treasury Department released an updated priority guidance plan for implementing the tax changes on Wednesday — and one of the major takeaways, as Aaron noted, is that they’ve heard the concerns that the new special tax relief for pass-through businesses could be hard to regulate. The Trump administration plans to offer rules in that area sooner rather than later, and the governing of that provision will include “computational, definitional, and anti-avoidance guidance.” Treasury and the IRS will also be focusing on the law’s new international rules, its cost recovery approach, tax on offshore profits and the so-called “opportunity zones” meant to spur investment in struggling areas.

Let’s chat some more: Senate Finance Chairman Orrin Hatch (R-Utah) announced that his panel will hold two hearings next Wednesday on President Donald Trump’s 2019 budget request — one for Treasury and the other for the IRS, with both hearings touching on tax law implementation.

THANKS FOR JOINING US THIS THURSDAY, where it’s once again time for the semiannual reminder that there are entirely too many Duke graduates working in D.C. (Go Heels.)

Holy C-Span, everybody — it’s now four decades to the day since the Senate’s proceedings were first broadcast on radio. (C-Span was founded a year later. The Senate floor action was actually televised for the first time in 1974, when Nelson Rockefeller was sworn in as vice president, though daily television coverage didn’t start until 1986.)

ABOUT THOSE DEFICITS: There’s a case to be made that the new spending deal will have a similar or even equal impact on deficits to the $1.5 trillion tax cut — and that illustrates that the GOP, or at least big pockets of it, has undergone a big shift in deficits over the last six or seven years, The Washington Post notes. “With all these changes, the annual gap between spending and revenue in 2019 is projected to eclipse $1.1 trillion, up from $439 billion in 2015. And they are expanding the deficit at an unusual time, when the economy is growing and unemployment is low, a dynamic that often leads to shrinking budget gaps.”

THE BRADY WAY: House Ways and Means Chairman Kevin Brady (R-Texas) just reminisced about the tax bill’s roller coaster journey with Bloomberg Tax’s Kaustuv Basu. Among the fun nuggets tucked in there: Brady suggested that he and other supporters of the border adjustment would have eventually won people over with the idea if the tax debate had been more of a slog — i.e., if Republicans didn’t win full control in 2016. Then there’s this: At November’s Ways and Means tax markup, “Brady used a gavel that belonged to his father, William Brady, when he was president of Elks Lodge 1187 in Rapid City, S.D. ‘I remember him dressed up in a tux and practicing his speech with my mom when he became president,’ Brady told Bloomberg Tax. About two years later, when Kevin was 12, his father, an attorney, was killed in a courtroom shooting. The November markup was the only time Brady used the gavel. He said he likely would never use it again.”

CRUMBS DEBATE, CONT’D: Senate Democrats rolled out a new report Wednesday to put some numbers behind their case that rich people and corporations were faring far better than the average worker in the tax bill, Aaron reports. The final tally: Corporations have rang up $97.2 billion in stock buybacks this year — which Wyden, the top Democrat on the Finance Committee, said far outstripped the amount of bonuses and pay increases that companies have given to workers. Wyden also said Wednesday that he had asked the Government Accountability Office to produce a detailed breakdown of how corporations are using their new windfalls.

The non-corporate response: Trump and his fellow Republicans have long said that small businesses would be among the tax cut’s biggest winners. But for at least some smaller companies, it’s far too soon to tell whether they’ll be able to offer bonuses or pay hikes to workers, The Associated Press reports. That’s in large part because the IRS has yet to issue those regulations governing the 20 percent deduction for pass-through income in the tax law. (Another issue: The deduction starts to lose its value after $315,000 worth of pass-through income for joint filers.) “Many business owners say they don't base decisions, including raises and bonuses, primarily on how much money they might save on taxes. Small business advisers say they've been seeing their clients holding to that conservative approach since the law went on the books in December,” according to the AP.

The Boeing response: The corporate giant announced Wednesday that it would earmark $100 million of its tax windfall for charitable investments — including that it would match up to $10,000 in eligible gifts made by employees. Boeing also said it would create a new program in which the company will contribute to nonprofits where employees volunteer, and that it would announce more benefits stemming from the tax cut throughout the year.

INTERNATIONAL UPDATE

CALLED OUT BY NAME: The two political parties that would potentially form a “grand coalition” government in Germany — Chancellor Angela Merkel’s Christian Democrats and the Social Democrats — singled out American tech titans in their coalition agreement, Reuters reports. “We support fair taxation of large companies, in particular Internet concerns like Google, Apple, Facebook and Amazon,” the agreement said. France, Germany, Italy and Spain have all been pushing for Europe to be tougher on tech companies’ tax maneuverings, with the French finance minister calling for legislation early next year.

STATE NEWS

GOING AFTER PROP 13? California’s Proposition 13, which sharply limits residents’ property taxes, is going on four decades old now. And as the Sacramento Bee reports, the push from liberals to chip away at that initiative could be picking up steam this year. “A coalition of civil rights and community organizations is expected to begin collecting signatures later this month for a measure to tax commercial properties at market value while leaving in place the Proposition 13 protections for homeowners, a concept known as ‘split roll.’” Currently, a homeowner’s property taxes start at 1 percent of a house’s purchase price, and can rise by no more than 2 percent a year or the rate of inflation — giving a big leg up to longtime homeowners.

QUICK LINKS

Is it turning? CNN: “Trump numbers on the rise with help from strong economy and tax reform.”

About The Author : Bernie Becker

Bernie Becker is a tax reporter for POLITICO Pro, where he is primarily responsible for writing the Morning Tax tipsheet.

He previously covered taxes for The Hill, and was an editorial assistant for The New York Times in Washington.

A native of Martinsville, Va., Becker has degrees from the College of William and Mary and the University of Maryland. He now lives in Northwest D.C. with his wife and young daughter. His hobbies include running, reading history books, eating spicy food and watching his daughter chase his cat.